TABLE OF CONTENT:

1. Introduction..2
2. Scope of Problem..2
3. Secondary Research.........................................................................................................3
3.1 Methodology...3
3.1.1 Total Quality Management3
3.1.2 Total Quality Management (TQM) Tools.4
4. Analysis.4
4.1 The exhaust systems used in our vehicle are of two types..4
4.1.1 The lean NOx trap (LNT)...4
4.1.2 Urea-based selective catalytic reduction (SCR) systems..5
4.2 The car models which are supposed to equip with these defeat device are
shown in below figure..5
4.3 Expected number of cars sold with defeat device5
4.4 Sales Trend..6
4.5 Market Analysis..6
4.5.1 Market share breakup7
4.5.2 Expected falls in the market share.7
4.5.3 Future Possibilities..7
5. Recommendations....8
5.1 Short Term Revival Strategies..8
5.2 Long Term Revival Strategies...8
5.3 Cost benefits analysis.9
5.4 Strategies for the internal and external communication..10
5.4.1 Things to do to rebuild the trust internally.10
5.4.2 Important things to do for better external communication..11
Bibliography...12

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1. Introduction:
As you might aware about the order which has been issue by Environmental Protection
Agency (EPA) to recall around 600,000 various diesel car models. This announcement was
preceded by a series of events that began in early 2014 when the International Council on
Clean Transportation (ICCT) in Washington DC conducted test on various diesel models of
Volkswagen. The ICCT gave the contract to Centre for Alternative Fuels, Engines and
Emissions at West Virginia University in Morgantown to check emissions under morerealistic conditions compare to lab test. These test conducted on three light-duty diesel
vehicles; Volkswagen Jetta, Volkswagen Passat and BMW X5, using a portable emissions
measurement system (PEMS). The test conducted over five pre-defined routes depending
upon driving conditions viz. highway, urban, suburban and rural-up/downhill driving. The
results claimed that the cars exceed the emissions level way beyond the standard level. For
the Passat, Real world NOx (Nitric oxide and nitrogen dioxide) emissions were 5 to 20 times
higher than standard limits. The BMW managed to stick with the standards except rural
uphill operating conditions in which it exceeds the limits. After the results of their research
were out, the ICCT shared this information with Environmental Protection Agency (EPA)
and California Air Resources Board (CARB). As a result the Environmental Protection
Agency ordered to recall the car models with affected engines. Now we are formulating an
internal committee which investigates the problem and look after for the subsequent
happenings.
2. SCOPE OF PROBLEM:
As you know, our cars were equipped with NOx after-treatment technologies, including one
lean-NOx trap (LNT) and two urea-based selective catalytic reduction (SCR) systems and
results during chassis dynamometer emission testing* at CARBs El Monte facility shown
below.
Category

LNT equipped Vehicles

Emissions

Urea- SCR equipped

vehicles

(* These emissions are below the EPA emission norms)

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0.022g/km 0.006g/km
(1, 2 repeat)
0.016g/km 0.002g/km
(1, 3 repeats)

Following table shows the emission norms of EPA for light-duty vehicles, light duty-trucks
and medium-duty passenger vehicle-(EPA Website)

(Source: EPA)

The research shows that real-world nitrogen oxide (NOx) emissions from the LNT equipped
Jetta exceeded the US-EPA Tier2-Bin5 (at full useful life) standard by 15 to 35 times, ureaSCR equipped Passat exceeds by a factor of 5 to 20 and BMW X5 remained at or below the
standard most of the time but only exceeds by factor of 10 in rural-up/downhill operating
conditions. There are allegations that we fitted defeat device into our vehicles to fool the EPA
norms.
3. SECONDARY RESEARCH:
3.1 Methodology:
3.1.1 Total Quality Management:
What is TQM?
TQM is the acronym for Total Quality Management. It is a system used by customer centric
organizations which involves all its employees in a process of continuous improvement.
TQM is essentially used in management practice for meeting or exceeding customer
expectations. To achieve continuous improvements in the business process, it centric
organization focuses basically on process measurements and controls. Hence it is an
integrated approach to improve productivity with both qualitative and quantitative concepts.
TQM consist of various concepts as follows and we can apply TQM concept to analyse and
solve our problem:

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3.1.2 Total Quality Management (TQM) Tools:

Concept 1 - Fact-Based Analysis and Decision Making for Continuous Improvement- The
decision making process should be fact based And should not affected by emotions or
personalities.
Concept 2 - Be Customer Focused and Process Centred Approach- The objective of TQM is
100% satisfaction of both internal and external customer and its focused on process
improvement to achieve zero defects.
Concept 3 A Strategic and Systematic Approach
Concept 4 - Total Employee Involvement and Integrated Approach- The decision should not
made by the top management only and all the stakeholders including employees should be
free to express their ideas, suggestions and concerns.
Concept 5- Communication- Effective communication among the stakeholders is a key to
success of any organization.(Source: http://www.brighthubpm.com/methodsstrategies/99647-analysis-of-tqm-quality-concepts/#)

4. ANALYSIS:
4.1The exhaust systems used in our vehicle are of two types:
4.1.1The lean NOx trap (LNT):

(Source: The New York Times, 2015)

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4.1.2 Urea-based selective catalytic reduction (SCR) systems: It converts NOx into
nitrogen and water. For diesel engines this system requires separate oxidation and reduction
catalysts.

EPA accused Volkswagen for the use of defeat device to manipulate the emission tests. It is
called defeat device because it is not a physical device but computer software that could
sense the test scenario by monitoring the speed of engine, the steering position, the throttle
position, time for which the engine is running and even the atmospheric pressure and trigger
full functioning of the NOx reduction exhaust system so the vehicle pass the test. In real
world conditions it shut down the system for better fuel efficiency and power delivery but
emits high amount of NOx.
4.2 The car models which are supposed to equip with these defeat device are shown in
below figure:

(Source: http://fortune.com)

4.3 Expected number of cars sold with defeat device: The following bar graph shows the
number of Diesel cars sold in USA during 2009-2014 which could have the defective exhaust
system.
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5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

No.of unit sold(In Millions)

4.4 Sales Trend: The sales of Volkswagen diesel cars steadily increased in the USA during
past few years. The comparative study of sales of diesel cars versus the sales of non-diesel
cars is shown in the following graph.

(NOTE: The data of 2015 is forecasted data)

(Source: http://www.freep.com)

4.5 Market Analysis: The Volkswagen has enjoyed the top position for very long period in
the USA diesel car market due to our superior performance compare to other players but due
to recent happenings the market share of our company decreased substantially. The breakup

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of market share and the expected reduction in the market share is explained in the following
figures with all the possibilities of the future market share.
4.5.1 Market share breakup:

(Source: http://static.cdn-seekingalpha.com)

4.5.2 Expected falls in the market share:

(SOURCE: THE WALL STREET JOURNAL)

4.5.3 Future Possibilities: Various possibilities of the market share in the future depending
upon how we handles the situation from now is shown in following figure:

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5. RECOMONDATIONS:
Depending upon the analysis various remedial actions has to be taken to regain the market
share and customer loyalty. We have to address our past plan which is made for the growth of
the organisation and have to totally overhaul it into new plan. The revival strategies can be
divided into two parts, short term strategies and long term strategies:
5.1 Short Term Revival Strategies:

The Golden rule for Crisis Management is Plan for the worst; hope for the best.
First of all we have to carry out our own investigation, have to co-operate fully with
any external or criminal investigations and should have to take disciplinary action
against the people behind this.
To fix our problem we have to options, one is totally buy-back all the cars with the
defect or to recall all the cars and fixe the technical issue free of cost. If we will not
take these steps, the companys reputation and licence to operate in the market remain
under threat.
Give compensation to the customers for diminished resale value.
Offer goodwill package to the existing customers for giving the support to the
company in difficult situation.
The software code used in computer which is fitted inside the car and regulates
various activities related to ignition and exhaust system should made public without
hampering the patent value of the software.
Get the verification certificate from external sources to conform the true emissions
rates for all new VW cars.

5.2 Long Term Revival Strategies:

Shift focus to hybrid and electric cars: Our competitor like Tesla and GM motors
invested heavily into the hybrid and electricity driven cars because it is the future of
the car industry. As we know VW working on this project from 1970, we have to

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scale up our efforts by investing in R&D department to come up with innovative

solutions so that we can implement these technologies to high end cars. We have to
work on single battery design philosophy so that the battery expenses should lower by
66% and we can make the affordable cars which run on the clean energy. Investment
in this type of project helps to regain our brand image.
Make ourselves pioneer in the synthetic and sustainable analysis: As we have
developed e-fuel suite for Audi, the third generation synthetic fuel which uses
atmospheric CO2 and renewable electricity hence it could heavily reduce the
emissions and could replace the conventional fuels but it has some limitations in
handling and transportation so need strong partnership with the big players who
worked in the energy sector.
Shift focus to emerging markets to coup up with declining sales in the developed
countries: As recent trends shows that our sales in the USA and in Europe is on
declining mode and we have set the goal to be the biggest car manufacturer by the end
of 2018 so we have to focus on the emerging markets where the emission rules are not
so stringent or the countries where companys image is not damaged so much due to
recent happening. These countries could be BRICS, Asian, African or the North
American Countries.
Make other car models as our face: As the Audi And Porsche are less damaged brands
compared to Volkswagen so make them as face of the new technology which
company wants to portrait. Apply the new technologies first on these cars and after
positive results apply them on the VW cars so it will help to build the VW brand
again. Do same for the lower segment cars by portraying the Skoda and Seat.
Need to focus on the commercial vehicle business for diversify the product mix: VW
have a strong market hold in the Latin America and Europe in commercial vehicle
segment and it owns to major commercial vehicle brand- Scania and MAN. Also the
recent research shows that the market for the medium range heavy-medium trucks is
growing at very fast rate so VW should focus on grabbing this market.
Need rigorous testing and certification mechanism in long run: We have to open our
entire portfolio to independent organisations which can test all the vehicles rigorously
and the results obtained from these testing under standard and in real world scenario
should made public.

5.3 Cost benefits analysis:

Cost:
Action
Customers can sell their cars back to the
company ( Buyback option)
Customer goodwill package

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COST(Approximate Estimated Value)

Have to pay between $12,500 and $44,000,
depending on model, age, and the region,
totalling to $10 billion.
We can offer $1000 cash for each customer
as goodwill package.

Customers do not sell their cars back to VW

and opt for compensation for the diminished
resale value plus free repairing
For settlement with the federal agencies
Additional investment in the environment and
clean energy project

Each customer will receive between $5100

and $10,000
Around $15 billion
2.5 billion

Benefits: Regain the market share and the customers loyalty and satisfaction. On regulatory
side we can again sell the cars in the market.
5.4 Strategies for the internal and external communication:
The recent crisis impacted our most valuable stakeholders, our people. VWs revolves around
the trust, integrity and reliability, all of which have been jeopardised and damaged, putting
into question about everything staff believe about the brand they represent and ultimately, the
people they work with for such long period. As we know, VW Group has a global workforce
of 600,000 employees and all are under stress, worry and insecurity of working for a
company which is about to face huge financial hit and results into millions of product recalls,
freeze production lines and experience a drastic drop in sales. So the first step in this situation
is to identify our crisis communications team, identify the spokesperson depending upon their
knowledge about the company, skills, position and training and establish a notification and
monitoring system for them.
5.4.1 Things to do to rebuild the trust internally:

Talking openly- At first we should be talking openly with our entire workforce, to
make sure everyone knows whats happened yet and what will happen next, by
arranging town hall meeting or by writing mail to entire family. We can use our
enterprise social networks to do so.

Listen carefully- We have to give employees a chance to express their feelings and
concerns about the problem by setting up focus groups and we can use our internal
networks to get a greater understanding of what impact these issues are making on
staff and what they need and expect from VW in return. Social media is a powerful
tool for greater insight into how staff thinks.

To reduce the uncertainty, inform them about the happenings: We cant leave anyone
in the dark in such difficult situation. In times of uncertainty and mistrust, a lack of
information will lead to wrong path and employees feel more insecure. It should
ensure that all the employees are well informed and they know exactly where to find
the latest information, like a dedicated website for the employees.

Strengthened whistle-blower procedures to ensure such event not happen again: We

have to strengthen our whistle-blower procedure so that anyone find anything wrong,
he/she freely tell the authority despite the position of the person who involved in
wrongdoing.

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5.4.2 Important things to do for better external communication:

Frankly accept the fault: Dont spread ambiguity by denying the fault, frankly accept
that weve fallen short of the standards expected and trying our best to rectifying it.

Launch a special page on the companys website to address the customers and other
stakeholders questions and give daily updates on what company is doing to fix the
problem.

Respect the medias role in such conditions- The media are not our enemy; they have
direct the access to the audiences we need to reach. Rather than avoiding media, we
have to use them as a tool to communicate key messages. Prepare a statement which
includes the confirmed facts; tell them what the company is doing and provide other
relevant information. The medias first questions are likely to be simple and
predictable like what happened, where happened, when and how you knew of the
problem, what you are doing about it, whos to blame, how will you compensate the
customer. So prepare the crisis communication team for these types of questions so
they present the company in better way.

Use research to determine the responses of the customer- We have to do market

research, polling by the third party and focus groups which gives essential insight into
the magnitude of a crisis and public attitudes about the crisis, we also have to monitor
the internet, blogs

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Bibliography:
EPA, https://www.epa.gov/sites/production/files/2016-03/documents/420b16013.pdf
Fortune, http://fortune.com/inside-volkswagen-emissions-scandal/
Freep, http://www.freep.com/story/money/cars/2015/09/26/vw-cheat-emissions-dieselengine-fallout/72612616/
Seekingalpha, http://static.cdn-seekingalpha.com/uploads/2015/7/6/395273261436179291748829-Value-Ideas.png
2015, The New York Times,
http://www.nytimes.com/interactive/2015/business/international/vw-diesel-emissionsscandal-explained.html?_r=0
The Wall Street Journal, http://www.wsj.com/articles/vw-dealers-suffer-as-diesel-car-salesstall-1450473802

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